How Long Does Bad Credit Last?

When a debt becomes seriously delinquent it is important to consider the time limitations for how long the debt is allowed to be reported on your credit reports. The FCRA has been around since the 1970's but the provisions were amended in September 1997. Therefore it is important to take into consideration if your debt was charged off before 1996 or after.

Prior to 1997 any account activity could extend the reporting period so creditors and collectors took advantage of this loophole to keep negative items on a consumer's report for many years. Remember however that each state has its own statute so those statute's do apply to the actual reporting time.

We are going to use California statute as an example here.

Calif State Rule

Reporting time: Section 1785.13. of the Calif. Civil Code

- Good credit stays for 10 years and then it is aged off but can stay longer.

- Bankruptcies that, from the date of adjudication, (means decision) antedate (means predate) the report by more than 10 years.

- Collection accounts and charge offs remain for 7 years from first serious delinquency or charge off date. (NOT the last date of activity.)

- Paying an old debt does NOT reset the clock on reporting for another 7 years.

- Suits and judgments that, from the date of entry or renewal, antedate (predate) the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

- Paid tax liens that, from the date of payment, antedate the report by more than seven years. (Paid tax liens are reported for 7 years from date paid not filed! So pay them quickly!)

- Records of arrest, indictment, information, misdemeanor complaint, or conviction of a crime that, from the date of disposition, release, or parole, antedate the report by more than seven years. These items of information shall no longer be reported if at any time it is learned that in the case of a conviction a full pardon has been granted, or in the case of an arrest, indictment, information, or misdemeanor complaint a conviction did not result.

- Any other adverse information that antedates the report by more than seven years.

- The seven-year period specified in paragraphs (5) and (7) of subdivision (a) shall commence to run, with respect to any account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency that immediately preceded the collection activity, charge to profit and loss, or similar action.

Where more than one of these actions is taken with respect to a particular account, the seven-year period specified in paragraphs (5) and (7) shall commence concurrently for all these actions on the date of the first of these actions. (What this means is that the creditor must report the charge off date truly and no-reage it or attempt to extend it).

- A consumer credit report shall not include any adverse information concerning a consumer antedating the report by more than 10 years or that otherwise is prohibited from being included in a consumer credit report.

- Consumer credit reporting agencies shall not include medical information in their files on consumers or furnish medical information for employment or credit purposes in a consumer credit report without the consent of the consumer.

- Child support: A consumer credit reporting agency shall include in any consumer credit report information, if any, on the failure of the consumer to pay overdue child or spousal support, where the information either was provided to the consumer credit reporting agency pursuant to Section 4752 or has been provided to the consumer credit reporting agency and verified by another federal, state, or local governmental agency.

- Every consumer credit reporting agency shall maintain reasonable procedures designed to avoid violations of this statute and to limit furnishing of consumer credit reports to the purposes listed under Section 1785.11

That is an excerpt from the California Code on credit reporting time limitations and if you live in California that would be the code you would review. The federal code always rules unless it offers less protection to the consumer than state. You should review your state code then review federal and see if there are any major differences and if there are, the one with the best consumer protection would rule.

Federal rule on credit reporting timelines

(a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information:

(1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.

(2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

(3) Paid tax liens which, from date of payment, antedate the report by more than seven years.

(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.

(5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years. (b) Exempted cases. The provisions of subsection (a) of this section are not applicable in the case of any consumer credit report to be used in connection with;

(1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more;

(2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or (3) the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.

(c) Running of reporting period.

(1) In general. The 7-year period referred to in paragraphs (4) and (6)(2) of subsection (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.

(2) Effective date. Paragraph (1) shall apply only to items of information added to the file of a consumer on or after the date that is 455 days after the date of enactment of the Consumer Credit Reporting Reform Act of 1996.

(d) Information required to be disclosed. Any consumer reporting agency that furnishes a consumer report that contains information regarding any case involving the consumer that arises under title 11, United States Code, shall include in the report an identification of the chapter of such title 11 under which such case arises if provided by the source of the information. If any case arising or filed under title 11, United States Code, is withdrawn by the consumer before a final judgment, the consumer reporting agency shall include in the report that such case or filing was withdrawn upon receipt of documentation certifying such withdrawal.

(e) Indication of closure of account by consumer. If a consumer reporting agency is notified pursuant to section 623(a)(4) [§ 1681s-2] that a credit account of a consumer was voluntarily closed by the consumer, the agency shall indicate that fact in any consumer report that includes information related to the account.

(f) Indication of dispute by consumer. If a consumer reporting agency is notified pursuant to section 623(a)(3) [§ 1681s-2] that information regarding a consumer who was furnished to the agency is disputed by the consumer, the agency shall indicate that fact in each consumer report that includes the disputed information.

You can see that the state statute above does not conflict with the federal and both offer pretty equal protection therefore you can cite either because there is no direct conflict. **Also see our statute of limitations to find out if your debt has expired to be legally collected. Collection time and reporting time are different.

Bad Credit Time Limits

1. What reporting limits does the FCRA provide with respect to chargeoffs, and how long have they been in effect?

Answer: Section 605(a)(4), which has been in effect since the FCRA became effective in April 1971, has always prohibited CRAs from reporting chargeoffs that are more than seven years old.(1) Section 623(a)(5), which became law in September 1997, requires a creditor that reports a charge off to a CRA to notify the agency (within 90 days of reporting the account) of "the month and year of the commencement of the delinquency that immediately preceded" the charge off. Section 605(c)(1) provides that the seven year period begins 180 days from that date. Both provisions were part of the major revision to the FCRA that were enacted in 1996.(2)

2. Is the reporting period extended if (A) the original creditor sells or transfers the account to another creditor, (B) the consumer responds to post-charge off collection efforts by making a payment on the debt, or (C) the consumer disputes the account with a CRA? Does it matter whether the 7-year period has expired when any of these events occurs?

Answer: No. In enacting the new provisions discussed above, Congress intended to establish a date certain -- 180 days after the start of the delinquency that led to the charge off -- to begin the obsolescence period. It did so to correct the often lengthy extension of the period that resulted from later events under the original FCRA. Here are two staff opinion letters (Kosmerl, 06/04/99; Johnson, 08/31/98) that discuss the impact of these provisions, and the legislative history relating to their enactment, in more detail. Because the commencement of the seven year period is now described with some precision by the statute, it is our opinion that none of the subsequent events you listed -- sale of the charged off account by the creditor, or a payment on or dispute about the account by the consumer -- changes the allowable period for a CRA to report a charge off.

3. Since Sections 623(a)(5) and 605(c)(1) provide new rules for calculating the 7-year period that became effective in 1997, do charge off accounts now have different obsolescence periods depending on when the charge off occurred?

Answer: Yes. Section 605(c)(2) states that the section "shall apply only to items of information added to the (CRA) file of a consumer on or after" 455 days after enactment, or December 29, 1997. Therefore, a charge off reported to a CRA on or after that date is subject to the new commencement-of-the-delinquency method of calculating the obsolescence period set forth in Sections 623(a)(5) and 605(c)(1). On the other hand, a charge off reported to a CRA before December 29, 1997, is not covered by the new provisions, as discussed in (Kosmerl, 06/04/99). If a credit account was reported as a charge off before that date, the Commission's view has been that it can be reported for seven years from the date the creditor actually charged it off.

Reasonable Procedures for CRA:

Whenever a consumer credit reporting agency prepares a consumer credit report, it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates. These reasonable procedures shall include, but not be limited to, permanent retention by the consumer credit reporting agency in the consumer's file, or a separately individualized file, of that portion of the data in the file that is used by the consumer credit reporting agency to identify the individual consumer pursuant to paragraph (1) of subdivision (a). This permanently retained data shall be available for use in either a reinvestigation pursuant to subdivision (a) of Section 1785.16, an investigation where the consumer has filed a police report pursuant to subdivision (k) of Section 1785.16, or a restoration of a file involving the consumer.

If the permanently retained identifying information is retained in a consumer's file, it shall be clearly identified in the file in order for an individual who reviews the file to easily distinguish between the permanently stored identifying information and any other identifying information that may be a part of the file. This retention requirement shall not apply to data that is reported in error, that is obsolete, or that is found to be inaccurate through the results of a reinvestigation initiated by a consumer pursuant to subdivision (a) of Section 1785.16.

Credit Reports: What Information Providers are responsible to do

Many consumers believe that the time of reporting can be extended by the furnisher of information (creditor). Often, consumers are told that the account can be reported for say, 7 years, then later they are told the account was re-aged or had some type of activity that led to a longer reporting time. Not true, it cannot be extended! To solve this dispute, below is the Federal Trade Commissions' view on the responsibility of these furnishers.

The Fair Credit Reporting Act (FCRA) is designed to protect the privacy of credit report information and to guarantee that information supplied by consumer reporting agencies (CRAs) is as accurate as possible. If you provide information to a CRA, such as a credit bureau, be aware that amendments to the law spell out new legal obligations. These amendments were effective September 30, 1997.

Does the FCRA Affect Me?

If you report information about consumers to a CRA, you are considered a "furnisher" of information under the FCRA. CRAs include many types of databases -- credit bureaus, tenant screening companies, check verification services, and medical information services -- that collect information to help businesses evaluate consumers. If you provide information to a CRA regularly, the FCRA requires that the CRA send you a notice of your responsibilities.

What Are My Responsibilities?

The responsibilities of information providers are found in Section 623 of the FCRA, 15 U.S.C. §1681s-2, and are explained here. Items 2 and 5 apply only to furnishers who provide information to CRAs "regularly and in the ordinary course of their business." All information providers must comply with the other responsibilities.

You may not furnish information that you know -- or consciously avoid knowing -- is inaccurate. If you "clearly and conspicuously" provide consumers with an address for dispute notices, you are exempt from this obligation but subject to the duties discussed in Item 3. What does "clear and conspicuous" mean? Reasonably easy to read and understand. For example, a notice buried in a mailing is not clear or conspicuous.

2. Correcting and Updating Information -- Section 623(a)(2).

If you discover you've supplied one or more CRAs with incomplete or inaccurate information, you must correct it, resubmit to each CRA, and report only the correct information in the future.

3. Responsibilities After Notice of a Consumer Dispute from a Consumer --Sections 623(a)(1)(B) and 623(a)(3).

If a consumer writes to the address you specify for disputes to challenge the accuracy of any information you furnished, and if the information is, in fact, inaccurate, you must report only the correct information to CRAs in the future. If you are a regular furnisher, you also will have to satisfy the duties in Item 2. Once a consumer has given notice that he or she disputes information, you may not give that information to any CRA without also telling the CRA that the information is in dispute.

If a CRA notifies you that a consumer disputes information you provided:

You must investigate the dispute and review all relevant information provided by the CRA about the dispute. You must report your findings to the CRA. If your investigation shows the information to be incomplete or inaccurate, you must provide corrected information to all national CRAs that received the information.

You should complete these steps within the time period that the FCRA sets out for the CRA to resolve the dispute -- normally 30 days after receipt of a dispute notice from the consumer. If the consumer provides additional relevant information during the 30-day period, the CRA has 15 days more.

The CRA must give you all relevant information that it gets within five business days of receipt, and must promptly give you additional relevant information provided from the consumer. If you do not investigate and respond within the specified time periods, the CRA must delete the disputed information from its files.

5. Reporting Voluntary Account Closings -- Section 623(a)(4).

You must notify CRAs when consumers voluntarily close credit accounts. This is important because some information users may interpret a closed account as an indicator of bad credit unless it is clearly disclosed that the consumer -- not the creditor -- closed the account.

6. Reporting Delinquencies -- Section 623(a)(5).

If you report information about a delinquent account that's placed for collection, charged to profit or loss, or subject to any similar action, you must, within 90 days after you report the information, notify the CRA of the month and the year of the commencement of the delinquency that immediately preceded your action. This will ensure that CRAs use the correct date when computing how long derogatory information can be kept in a consumer's file.

How do you report accounts that you have charged off or placed for collection? For example:

A consumer becomes delinquent on March 15, 1998. The creditor places the account for collection on October 1, 1998. In this case, the delinquency began on March 15, 1998. The date that the creditor places the account for collection has no significance for calculating how long the account can stay on the consumer's credit report. In this case, the date that must be reported to CRAs within 90 days after you first report the collection action is "March 1998."

A consumer falls behind on monthly payments in January 1998, brings the account current in June 1998, pays on time and in full every month through October 1998, and thereafter makes no payments. The creditor charges off the account in December 1999.

In this case, the most recent delinquency began when the consumer failed to make the payment due in November 1998. The earlier delinquency is irrelevant. The creditor must report the November 1998 date within 90 days of reporting the charge-off. For example, if the creditor charges off the account in December 1999, and reports this charge-off on December 31, 1999, the creditor must provide the month and year of the delinquency (i.e., "November 1998") within 90 days of December 31, 1999.

A consumer's account becomes delinquent on December 15, 1997. The account is first placed for collection on April 1, 1998. Collection is not successful. The merchant places the account with a second collection agency on June 1, 2003. The date of the delinquency for reporting purposes is "December 1997." Repeatedly placing an account for collection does not change the date that the delinquency began.

A consumer's credit account becomes delinquent on April 15, 1998. The consumer makes partial payments for the next five months but never brings the account current. The merchant places the account for collection in May of 1999. Since the account was never brought current during the period that partial payments were made, the delinquency that immediately preceded the collection commenced in April 1998 when the consumer first became delinquent.